CFA Level I · CFA Level I Exam · Credit Analysis for Corporate Issuers
A company has issued both secured and unsecured debt, and the secured creditors' collateral is worth less than their claims. With respect to the shortfall, the secured creditors most likely:
The secured creditors rank equally with unsecured creditors for the shortfall. The unpaid part of their claim becomes a deficiency claim, treated as unsecured and sharing pari passu with other unsecured creditors.
- Arank equally with unsecured creditors for the remaining claimCorrect
- Bare paid ahead of all unsecured creditors for the remaining claim
- Close their claim to the remainder and receive nothing further
Explanation
When collateral is insufficient, the unpaid portion of a secured claim becomes an unsecured (deficiency) claim that ranks pari passu with other unsecured claims. It does not retain priority and is not extinguished.
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